Ethanol’s Policy Privileges: Heading for History’s Dustbin?
Congress has a golden opportunity to put the general welfare of consumers and taxpayers ahead of the corporate welfare of the ethanol lobby.
December 3, 2010 - 12:00 am
The lame-duck Congress has a rare opportunity to avoid $25-30 billion in new deficit spending over the next five years, ease consumers’ pain at the pump, and scale back political manipulation of energy markets by literally doing nothing.
At the stroke of midnight on December 31 of this year, the 45¢ per gallon Volumetric Ethanol Excise Tax Credit (VEETC), commonly known as the blender’s credit, and the 54¢ per gallon tariff on imported ethanol, will expire.
A bipartisan group of 17 senators, led by Sens. Dianne Feinstein (D-Calif.) and Jon Kyl (R-Ariz.), say it’s time for these special-interest giveaways to go gently into the night. A broad coalition of environmental, taxpayer, hunger, free market, and food industry organizations are urging House and Senate leaders to let the VEETC meet its statutorily appointed fate.
An exciting prospect — for the first time ever, Congress may decide to put the general welfare of consumers and taxpayers ahead of the corporate welfare of the ethanol lobby.
The outcome, of course, is far from certain. Growth Energy, a prominent ethanol lobbyist, advocates a five-year extension of the VEETC and tariff, a mandate requiring that all vehicles sold in the United States be capable of running on E-85 (motor fuel blended with 85% ethanol), taxpayer-backed federal loan guarantees to build a national ethanol pipeline network, and tax credits for the installation of 200,000 E-85 pumps at service stations.
America is not addicted to oil (consumers will stop buying gasoline the moment a superior product comes along), but the ethanol lobby is hooked on subsidies. As with any genuine addiction, ethanolism is an appetite that grows with feeding. The lobby may say it wants to make America energy independent, save the planet, and save the family farm, but what it really wants is MORE — more trade protection, more of our tax dollars, and more market-rigging rules.
Growth Energy’s ask-for-the-moon agenda has zero prospect of being enacted in the lame-duck Congress. Many compromises are possible, though, such as a one-year extension or scaling back the VEETC from 45¢ to 36¢ a gallon. We, the People, should just say no. For fiscal, humanitarian, and environmental reasons, Congress should give the VEETC and tariff the quiet burial they deserve.
The 45¢ per gallon VEETC is a “refundable” tax credit, which means it is paid for by taxpayers, with checks drawn from the general fund of the U.S. Treasury, to the tune of $5-6 billion a year. With the national debt expected to equal or exceed GDP in 2012, now is not the time to renew such extravagance.
Back in 2005 and 2007, Congress enacted and expanded a renewable fuel mandate requiring blenders to sell increasing amounts of motor fuel made from plant materials. By 2022, 36 billion gallons of the nation’s motor fuel supply must be “renewable.” The corn ethanol component of the mandate maxes out at 15 billion gallons a year in 2015. The remaining 21 billion gallons are to be “advanced” biofuels — so named not because they improve engine performance or provide additional value to consumers but because they have a smaller carbon footprint.
Congress should never have enacted this Soviet-style production quota system in the first place. But as long as the renewable fuel mandate is in place, consumers should at least be free to buy ethanol at competitive prices. The protective tariff prevents lower-priced Brazilian sugarcane ethanol from competing in U.S. fuel markets. It increases pain at the pump.
In combination with the mandate, the VEETC and tariff also divert massive quantities of grain from food to auto fuel — a factor contributing to food price inflation and the world hunger crisis of 2008. In contrast, Brazilian sugarcane ethanol poses no risk to global food security.
Al Gore’s “planetary emergency” has many able debunkers. But even if you believe global warming is a problem, the VEETC and tariff are duds (or worse) as climate policy. Brazilian sugarcane ethanol has a smaller carbon footprint, which is why EPA classifies it as an “advanced biofuel.” Yet the tariff prevents Americans from buying this “greener” commodity.
Analyses by the University of Missouri Food and Agricultural Policy Research Institute, Iowa State University (in the heart of corn country), and the Congressional Budget Office (CBO) find that the mandate chiefly determines how much ethanol is produced over the next five years. The VEETC and tariff support only a small and declining fraction of total production. Consequently, any incremental greenhouse gas reduction attributable to those policies has an unreasonably high price tag. The CBO, for example, estimates that the VEETC costs taxpayers $750 to $1700 for every ton of greenhouse gases avoided — many times the estimated price of emission permits under the Waxman-Markey cap-and-trade bill, which the Senate did not see fit to pass.
Ironically, the corn rush may actually increase net greenhouse gas emissions, as Tim Searchinger of Princeton University and Joe Fargione of the Nature Conservancy found in separate studies. A gallon of ethanol emits less carbon dioxide (CO2) than a gallon of gasoline when combusted. However, CO2-emitting fossil fuels are used to make fertilizer, operate farm equipment, power ethanol distilleries, and transport the ethanol to market. In addition, when farmers plow grasslands and clear forests to expand corn acreage, or to grow food crops displaced elsewhere by energy crop production, they release carbon previously locked up in soils and trees. For several decades, such land use changes can generate more CO2 than is avoided by substituting ethanol for gasoline.